Until recently, businesses in Michigan had to pay taxes on almost all their equipment. Not surprisingly, they didn’t like this tax.
The state Legislature has done its part to phase out the personal property tax, but the rest is up to voters when they decide the fate of Proposal 1 on Tuesday’s ballot.
Businesses pay the personal property tax on everything from the factory machines that build cars and trucks to playground equipment and changing tables.
Meet Jerry Grubb, who owns the Wee Discover daycare center in Waterford.
“Sixteen years we’ve had those tables and changing tables, and 16 years I’ve been paying personal property tax,” he says. He says the same is true for computers, desks, and the high-powered dishwasher that keeps spoons, plates and baby bottles clean.
“I pay tax when I buy it and I pay tax on it every year,” he says.
Grubb and other Michigan business owners say the personal property tax is not only unfair, and cumbersome to comply with, but it also discourages investment: buying new equipment and hiring more employees.
Well, irritated business owners got their wish this year when the Legislature adopted a plan to phase out the personal property tax.
But it is a solution borne of suspicion. And that’s why Proposal 1 was hatched.
The personal property tax is a state tax, but it’s levied by local governments. And a lot of local governments, especially those with big factories or a lot of smaller businesses, rely on the revenue from the tax to balance their budgets.
Lansing Mayor Virg Bernero supports the proposal.
“We’re trying to keep our fire engines running and trying to keep police on the street,” he says. He says public safety eats up more than half of his city’s budget.
“That’s why when we evaluate Proposal 1, we think about it in terms of replacement revenue. We don’t want to sound grabby, but the fact is, we perform vital services. We have to answer 911 calls, and fill potholes, and have some parks and recreation for kids to keep them off the street,” says Bernero.
So when Governor Rick Snyder and the Legislature put the personal property tax in their sights, local officials said their communities had to break even on the deal.
But here’s the other part...
Local officials don’t trust the state to keep its promises when it comes to money for local governments. That’s because for years, the Legislature cut state revenue-sharing payments to local governments by billions of dollars.
So state lawmakers said, “You don’t trust us? We’ll take ourselves out of the equation.” So they created a virtual government: a local government that has no specific boundaries. No mayor. No police or fire department.
It exists solely to collect revenue from a few dedicated sources and to guarantee locals don’t lose money. The money bypasses the Legislature altogether, and gets distributed to, well, real local governments.
David Holtz is a writer and a progressive activist.
“I think it’s a shell game,” he says.
He’s voting “no” on Proposal 1. He says the state doesn’t need to give another tax break to businesses.
“The money has to come from somewhere and if it’s not coming from companies that are not paying the personal property tax now, eventually it’s going to have to come from somewhere else, and this Legislature has a track record of that ‘someone else’ being people like me,” he says.
It’s true, the Legislature can go back and change the law if lawmakers decide sometime down the road they need that money for something else.
If Proposal 1 fails, the personal property tax is restored, and the Legislature goes back to the drawing board.
